Unauthorized Rate Change Case Returns to Lower Court as Class Action

The suit against the $965 million Black Hills Federal Credit Union and CUNA Mutual alleging improper increases in credit life disability insurance rates was remanded Aug. 14 by the South Dakota Supreme Court back to a lower court to be tried as a class action suit.

The original complaint was filed Edward D. and Kathy L. Thurman, who obtained a closed-end home equity loan in 1995. The suit alleges the Rapid City, S.D.-based credit union and Madison, Wis.-based insurer make illegal changes to the credit disability insurance policies of 4,461 borrowers without adequately notifying the borrowers of the change, according to court documents.

The Thurman’s policy specified the couple would pay $4,140.79 over the 15-year life of their $30,114. 47 loan, or $0.14 for every $100 of the outstanding loan balance. In July 1999, BHFCU unilaterally changed its group credit disability insurance policy, not just the rate as authorized by the contract, the documents said.

The new policy included a rate increase to $0.235 per $100 of outstanding loan balance. The policy also included a structure change from a 30-day non-retroactive policy to a 14-day retroactive policy. That means the insured’s payments begin after the insured is disabled for 14 days and are retroactive to the first date of the disability.

According to court documents, shortly after the policy change, the Thurmans contacted BHFCU about paying off their loan early. The Thurmans thought they owed $4,260 on the loan, or twelve payments of $355. However, a credit union representative told Kathy Thurman her outstanding balance was more than $10,000.

The plaintiffs allege it took BHFCU as long as two weeks to determine the increased outstanding balance was the result of the credit disability policy change and corresponding rate increase.

Upon hearing the news, Kathy Thurman complained to the South Dakota Department of Revenue’s Division of Insurance and the NCUA. The subsequent investigation by the Division of Insurance resulted in a consent order detailing its allegations against CUNA Mutual. The insurer neither admitted nor denied fault and paid a fine of $116,000.

The policy changes were announced in the credit union’s July 1999 quarterly newsletter, but not through specific contact with participating borrowers. The newsletter notice did not fulfill with state notification requirements, the Division of Insurance said.

The Thurman’s motion for class certification was originally denied by the South Dakota 7th Judicial Circuit Court. The couple petitioned the state Supreme Court for a discretionary appeal of the class certification order and was granted an intermediate appeal.

The Supreme Court’s decision reflects its opinion on the class certification standing, not the merits of the case.

“We reverse and remand the trial court’s denial of class certification because the trial court erred in its application of class certification statutes to the facts in this case,” Judge Robert A. Mandel said in his opinion.

CUNA Mutual continues to oppose the merits of the case, said Spokesman Phil Tschudy.

“The group policy allows us to change the rates as long as we provide proper notice, and we did provide that notice more than a month before the change,” he said. “It’s a difference of opinion, and the change in classification won’t stop us from proceeding.”